<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Frederick Brewing Co.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOG0]
FREDERICK BREWING CO.
4607 WEDGEWOOD BOULEVARD
FREDERICK, MARYLAND 21703
(301) 694-7899
March 25, 1998
Dear Stockholder:
On behalf of the Board of Directors and management, I cordially invite
you to attend the Annual Meeting of Stockholders to be held on Thursday, April
23, 1998 at 11:00 a.m. Eastern Time, at the offices of the Company at 4607
Wedgewood Boulevard, Frederick, Maryland.
The formal Notice of the Annual Meeting and Proxy Statement accompanying
this letter describe the specific business to be acted upon at the Annual
Meeting. In addition to the specific matters to be acted upon, there will be an
opportunity for Stockholders to tour the brewery and to ask questions of
management and our independent auditors.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE REQUESTED TO VOTE, SIGN, DATE, AND
PROMPTLY RETURN THE ENCLOSED FORM OF PROXY IN THE ENVELOPE PROVIDED. YOUR RETURN
OF THE FORM OF PROXY WILL NOT PREVENT YOU FROM VOTING IN PERSON, BUT WILL ENSURE
THAT YOUR VOTE IS COUNTED IF YOU ARE UNABLE TO ATTEND.
Your support, investment and interest in the Company is greatly
appreciated.
Very truly yours,
/s/ Kevin Brannon
KEVIN E. BRANNON
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
\
FREDERICK BREWING CO.
---------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 1998
---------------------------------------------------------
To the Holders of Common Stock
of Frederick Brewing Co.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Frederick Brewing Co., a Maryland corporation (the
"Company"), will be held on Thursday, April 23, 1998 at 11:00 a.m. Eastern Time,
at the offices of the Company at 4607 Wedgewood Boulevard, Frederick, Maryland,
for the following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
(1) To elect one director, whose name is set forth in the accompanying
proxy statement to hold office until the Annual Meeting of
Stockholders in the year 1999, and until his successor is elected and
qualified and to elect two directors, the names of whom are set forth
in the accompanying proxy statement, to hold office until the Annual
Meeting of Stockholders in the year 2001, and until their successors
are elected and qualified; and
(2) To amend the Articles of Amendment and Restatement of the Articles of
Incorporation by increasing the total number of shares of capital
stock, which the Company has the authority to issue from 10,000,000
to 20,000,000; and
(3) To ratify the appointment of Coopers & Lybrand LLP as independent
auditors of the Company for the year ending December 31, 1998; and
(4) To vote on a proposal to approve an adjournment of the Annual Meeting
to another date or place for the purpose of soliciting additional
proxies if there are not sufficient votes at the time of the Annual
Meeting to approve the foregoing proposals; and
(5) To transact such other business as may properly come before the
Annual Meeting, or any such adjournment thereof. Except with respect
to the foregoing proposals and procedural matters incident to the
conduct of the Annual Meeting, management is not aware of any other
matters which could come before the Annual Meeting.
As determined by the Board of Directors, only stockholders of record at
the close of business on March 12, 1998 are entitled to notice of, and to vote
at, the Annual Meeting of Stockholders or any postponement or adjournment
thereof.
By Order of the Board of Directors,
/s/ Kevin Brannon
KEVIN E. BRANNON
Chairman of the Board
March 25, 1998
Frederick, Maryland
PLEASE NOTE
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU
OWN.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE
MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE
REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE
THEREOF.
<PAGE> 4
FREDERICK BREWING CO.
4607 WEDGEWOOD BOULEVARD
FREDERICK, MARYLAND 21703
-------------------------------
PROXY STATEMENT
-------------------------------
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Frederick Brewing Co., a Maryland corporation (the
"Company"), of proxies for the Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Thursday, April 23, 1998, at 11:00 a.m. Eastern Time, at
the offices of the Company located at 4607 Wedgewood Boulevard, Frederick,
Maryland, and at any adjournments or postponements thereof, for the purposes set
forth in the accompanying Notice of Annual Meeting. Shares of common stock,
$.00004 par value per share (the "Common Stock"), of the Company may be
represented at the Annual Meeting by stockholders in person or by the return of
the enclosed, properly executed, proxy card.
The Notice of Annual Meeting, this proxy statement and the enclosed proxy
card are first being mailed to stockholders commencing on or about March 25,
1998.
Expenses in connection with this solicitation of proxies will be paid by
the Company. Solicitation of proxies will be principally by mail. One or more
officers or employees of the Company may, but without compensation other than
their regular compensation, also solicit proxies, either personally, by
telephone, facsimile, or by special letter, from some stockholders. The Company
will also make arrangements with brokerage houses and other custodians,
nominees, and fiduciaries to send proxy materials to their principals or to
beneficial owners, and will reimburse them for their expenses in so doing.
VOTING RIGHTS AND PROCEDURES
QUORUM
The presence, either in person or by proxy, of the holders of a majority
of the shares of Common Stock outstanding on March 12, 1998 is necessary to
constitute a quorum at the Annual Meeting.
ELECTION OF DIRECTORS
The election of directors requires a plurality of the votes cast by the
shares entitled to vote at the election, either in person or represented by
proxy, with a quorum present. Each share of Common Stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
AMENDMENT TO THE ARTICLES OF AMENDMENT AND RESTATEMENT OF THE ARTICLES OF
INCORPORATION
The amendment to the Articles of Amendment and Restatement of the
Articles of Incorporation of the Company (the "Articles") requires an
affirmative vote of more than two-thirds of all votes entitled to be cast, with
a quorum, at this Annual Meeting.
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RATIFICATION OF INDEPENDENT AUDITORS
The affirmative vote of the holders of a majority of the total votes cast
at the Annual Meeting is required for approval of the proposal to ratify the
appointment of the independent auditors.
APPROVAL OF ADJOURNMENT
The affirmative vote of the holders of a majority of the total votes cast
at the Annual Meeting is required for approval of the proposal to approve any
adjournment of the Annual Meeting.
OTHER MATTERS
Abstentions will be counted for purposes of determining the presence of a
quorum at the Annual Meeting. Because of the required votes, abstentions will
have the same effect as a vote against the proposals to amend the Articles,
ratify the appointment of the Company's independent auditors and approve any
adjournment, but will not be counted as votes cast for the election of directors
and, thus, will have no effect on the voting for the election of directors.
Under the applicable rules, all of the proposals for consideration at the Annual
Meeting are considered "discretionary" items upon which brokerage firms may vote
in their discretion on behalf of their clients if such clients have not
furnished voting instructions. Thus, there are no proposals to be considered at
the Annual Meeting which are considered "non-discretionary" and for which there
will be "broker non-votes."
At March 12, 1998, directors and executive officers and their affiliates
of the Company beneficially owned shares of Common Stock, or % of
the total shares of Common Stock outstanding on such date. It is anticipated
that all of such shares will be voted for the election of the nominees of the
Company's Board of Directors and in favor of all of the proposals of the Board
described herein.
PROXIES
Shares of Common Stock represented by properly executed proxies, if such
proxies are received in time and not revoked, will be voted in accordance with
the instructions indicated on the proxies. If no instructions are indicated,
such proxies will be voted (i) FOR the nominees for director described herein;
(ii) FOR the amendment of the Articles; (iii) FOR the ratification of Coopers &
Lybrand LLP as the Company's independent public accountants for the year ending
December 31, 1998; (iv) FOR the approval of any adjournment and (v) in the
discretion of the proxy holder as to any other matter which may properly come
before the Annual Meeting. Any holder of Common Stock who returns a signed proxy
but fails to provide instructions as to the manner in which such shares are to
be voted will be deemed to have voted in favor of the matters set forth in the
preceding sentence.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Annual Meeting by (i) giving written notice of revocation to
the Secretary of the Company, (ii) properly submitting to the Company a
duly-executed proxy bearing a later date, or (iii) attending the Annual Meeting
and voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Frederick
Brewing Co., 4607 Wedgewood Boulevard, Frederick, Maryland 21703, Attention:
Secretary.
SHARES OUTSTANDING
Only Common Stockholders of record at the close of business on March 12,
1998 (the "Record Date") are entitled to notice of the Annual Meeting and to
vote the shares of Common Stock held by them on that date at the Annual Meeting
or any adjournment or postponement thereof. Only holders of
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<PAGE> 6
Company Common Stock will be entitled to vote at the Annual Meeting and each
outstanding share of Common Stock entitles its holder to cast one vote on each
matter to be voted on at the Annual Meeting, and for the election of directors,
each share of Common Stock may be voted for as many individuals as there are
directors to be elected and for those whose election the share is entitled to be
voted. There were outstanding on March 12, 1998, the record date for
stockholders entitled to notice of and to vote at the 1998 Annual Meeting,
shares of Common Stock. At March 12, 1998, the Company had shares of 8%
Cumulative Convertible Preferred Stock, Series A ("Series A Preferred Stock"),
no shares of Convertible Preferred Stock, Series B ("Series B Preferred Stock"),
shares of Convertible Preferred Stock, Series C ("Series C Preferred
Stock"), shares of Convertible Preferred Stock, Series D ("Series D
Preferred Stock") and 3000 shares of Convertible Preferred Stock, Series E
("Series E Preferred Stock") outstanding, none of which have the right to vote
at the Annual Meeting.
BENEFICIAL OWNERSHIP
Set forth below is information with respect to shares of Common Stock
beneficially owned, as of March 12, 1998 by: each beneficial owner of 5% or more
of the Common Stock; each nominee for director; each director of the Company;
each executive officer named in the Summary Compensation Table; and by all
directors and officers of the Company as a group. In addition, as of March 12,
1998, no persons were known by the Company to beneficially own 5% or more of the
issued and outstanding Common Stock. The address for all directors and executive
officers of the Company, is 4607 Wedgewood Boulevard, Frederick, Maryland 21703.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
NAME OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER POSITION OWNERSHIP(1)(2) OF CLASS
- ------------------------ --------------------------------------- --------------- --------
<S> <C> <C> <C>
Kevin E. Brannon(3) Chairman of the Board & Chief
Executive Officer 147,130 --%
Marjorie A. McGinnis(3) President 147,130 --%
Nicholas P. Foris, MD(4) Director 117,194 --%
Carl R. Hildebrand(5) Director 5,000 --%
Jerome M. Pool(6) Director 22,344 --%
Maribeth Visco(7) Director 21,680 --%
James W. Lutz(8) Director -- --%
Steven T. Nordahl(9) Vice President - Brewing Operations 57,406 --%
Leslie P. Harper(10) Chief Financial Officer 3,334 --%
Patrick L. Helsel(11) Vice President - Sales 522 --%
All directors and executive officers as a group (10 persons)(12) 521,740 --%
</TABLE>
- -------------------------------
(1) Beneficial ownership of the Common Stock has been determined for this
purpose in accordance with Rule 13d-3 of the Securities and Exchange
Commission ("SEC"), under which a person is deemed to be the beneficial
owner of securities if he or she has or shares voting power or investment
power in respect to such securities, or has the right to acquire beneficial
ownership within 60 days.
(2) Percentage of Class does not take into account the 2,190,252 shares of
Common Stock into which the Series A, C and D Preferred Stock are
immediately convertible.
(3) The number of shares shown in the table for each of Mr. Brannon and Ms.
McGinnis excludes the number of shares beneficially owned by the other.
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<PAGE> 7
(4) Includes 6,000 shares which may be received upon the exercise of
immediately exercisable stock options. Does not include 54,705 shares of
Convertible Preferred Stock, Series A.
(5) Includes 5,000 shares which may be received upon the exercise of
immediately exercisable stock options.
(6) Includes 7,000 shares which may be received upon the exercise of
immediately exercisable stock options.
(7) Includes 7,000 shares which may be received upon the exercise of
immediately exercisable stock options.
(8) FOOTNOTE LEFT BLANK FOR INFORMATION ON JIM LUTZ, UPON CALCULATION OF WILD
GOOSE RECONCILIATION.
(9) Includes 16,779 shares which may be received upon the exercise of
immediately exercisable stock options.
(10) Includes 3,334 shares which may be received upon the exercise of
immediately exercisable stock options.
(11) Includes 522 shares which may be received upon the exercise of immediately
exercisable stock options.
(12) Includes 52,635 shares which may be acquired by all directors and officers
of the Company as a group upon the exercise of immediately exercisable
stock options.
ELECTION OF DIRECTORS
GENERAL INFORMATION
The Articles and the Amended and Restated Bylaws ("Bylaws") of the
Company provide that the Board of Directors shall be divided into three classes
as nearly equal in number as possible, and that the members of each class shall
be elected for terms of three years and until their successors are elected and
qualified, with one of the three classes of directors to be elected each year.
The Company's Articles of Incorporation stipulate a minimum of five and a
maximum of twenty-one directors. The Bylaws provide that the number of directors
may be increased or decreased by a vote of a majority of the Whole Board of
Directors and a majority of the Continuing Directors, as such terms are defined
in the Articles of Incorporation.
At the Annual Meeting, stockholders of the Company will be asked to elect
one director of the Company for a one year term and until his successor is
elected and qualified as well as two directors of the Company for a three year
term and until their successors are elected and qualified. The nominee for
election as a director for the one year term was recently appointed to the Board
and was selected by the Nominating Committee of the Board of Directors to
complete the vacancy left by Mr. Peter Spellar's departure from the Board in
1997 due to the demands of his occupation. The remaining two nominees for
election as directors were selected by the Nominating Committee of the Board of
Directors and each nominee currently serves as a director of the Company. There
are no arrangements or understandings between the persons nominated and any
other person pursuant to which such person was selected as a nominee for
election as a director at the Annual Meeting, and no director or nominee, other
than Mr. Brannon and Ms. McGinnis who are married to each other, is related to
any other director or executive officer of the Company by blood, marriage or
adoption.
If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Annual Meeting, the proxies will nominate and
vote for any replacement nominee or nominees recommended by the Board of
Directors of the Company. At this time the Board of Directors knows of no reason
why any of the nominees may not be able to serve as a director if elected.
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<PAGE> 8
Article VII.D. of the Company's Articles governs nominations for election
to the Board of Directors and requires all nominations for election to the Board
of Directors, other than those made by or at the direction of the Board, to be
made pursuant to timely notice in writing to the Secretary of the Company, as
set forth in the Articles. To be timely, with respect to an election to be held
at an Annual Meeting of the Stockholders, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of the
Company, not later than sixty days prior to the anniversary date of the mailing
of proxy materials by the Company in connection with the immediately preceding
Annual Meeting of Stockholders of the Company. Each written notice of a
stockholder nomination must set forth certain information specified in the
Articles. The presiding officer of the Annual Meeting may refuse to acknowledge
the nomination of any person not made in accordance with the procedures set
forth in the Articles.
INFORMATION REGARDING NOMINEES AND OTHER CONTINUING DIRECTORS
There is shown below for each nominee for election as a director, and for
each continuing director the individual's name, age, his or her period of
service as a director of the Company and his or her principal occupation and
business experience for the past five years as of March 12, 1998.
Nominee for Director For a One Year Term Expiring at the 1999 Annual Meeting.
- --------------------------------------------------------------------------------
JAMES W. LUTZ, 40 Director Since 1998
Mr. Lutz joined the Company as Director and President of its newly
acquired subsidiary, Wild Goose Brewing, Inc. in January 1998. Prior
thereto from January 1992 until the consummation of the acquisition he
served as President and Chief Executive Officer of Wild Goose Brewing,
Cambridge, Maryland.
Nominees for Director For a Three Year Term Expiring at the 2001 Annual Meeting.
- --------------------------------------------------------------------------------
KEVIN E. BRANNON, 43 Director Since 1992
Chairman of the Board and Chief Executive Officer of the Company since
co-founding it in March 1992. Served as President of the Company from
March 1992 until July 1994. From November 1987 to November 1991, he was a
senior associate with the law firm of Preston, Gates & Ellis in Portland,
Oregon.
MARJORIE A. McGINNIS, 36 Director Since 1992
President of the Company since July 1994. Co-founded the Company in March
1992 and served as Executive Vice President until July 1994. From
November 1985 to August 1991, she was a partner and the administrator of
B&G Partnership and Butler Brothers Farm and Orchard in Martinsburg, West
Virginia.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE
NOMINEES AS DIRECTORS.
Continuing Directors Whose Terms Expire at the 1999 Annual Meeting.
- --------------------------------------------------------------------------------
NICHOLAS P. FORIS, MD, 72 Director Since 1994
Dr. Foris is a thoracic and cardiovascular surgeon practicing in
Frederick, Maryland.
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<PAGE> 9
MARIBETH VISCO, 40 Director Since 1993
Ms. Visco has been a Principal in the commercial leasing firm of Kline
Scott Visco in Frederick, Maryland since July 1985. She serves as
Secretary of the Board.
Continuing Directors Whose Terms Expire at the 2000 Annual Meeting.
- --------------------------------------------------------------------------------
CARL R. HILDEBRAND, 46 Director Since 1995
Mr. Hildebrand is a Certified Public Accountant engaged in private
practice since August 1995 with Hildebrand, Limparis & Hevey in Rockville
and Frederick, Maryland, and from December 1990 to July 1995 as a partner
with McLean, Koehler, Sparks and Hammond, the Company's prior independent
auditors.
JEROME M. POOL, 62 Director Since 1993
Retired Chairman of the Board and President of the Jantzen, Inc., a
division of VF Corporation, a manufacturer of sports and swim wear. Since
his retirement in December 1991, he has been consulting with private
businesses.
EXECUTIVE OFFICERS
Information regarding the current executive officers of the Company who
are not directors, including their names, ages, positions with the Company, and
a brief description of their business experience during the past five years, is
presented below. All executive officers of the Company are elected annually by
the Board of Directors and serve at the discretion of the Board of Directors
until their successors are elected and qualified. No such executive officer who
is not a director is related to any director or other executive officer of the
Company by blood, marriage or adoption, and there are no arrangements or
understandings between a director and any other person pursuant to which such
person was elected an executive officer.
Steven T. Nordahl, 28, Vice President - Brewing Operations and Brewmaster
since October 1992. From August 1991 to June 1992, Mr. Nordahl attended and
graduated from the University of California at Davis Master Brewers' program.
From May 1990 to August 1991, he acted as Program Director of Amerivision
Communications, Inc., Oklahoma City, Oklahoma. From January 1987 to May 1990, he
attended the University of Washington at Seattle.
Leslie P. Harper, 49, Chief Financial Officer since November 1997. From
August 1987 to May 1996, Mr. Harper served as Chief Financial Officer/Controller
of Racal-Guardata, Inc., Herndon, Virginia. Mr. Harper holds a B.S. in
Accounting from Bentley College, Waltham, Massachusetts and an M.B.A. in Finance
from Babson College, Wellesley, Massachusetts.
Patrick Helsel, 34, Vice President - Sales, since November 1997. Prior to
his joining the Company in 1996, Mr. Helsel served as a sales presentative to
Mass Bay Brewing Co. of Boston, Massachusetts from 1994 to 1996. During 1992
through 1994, he served as regional sales manager of Warsteiner Imports Agency,
Denver Colorado. He received his B.A. in Communications from the University of
Denver, also located in Denver, Colorado.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Effective with the date of registration of the Company's Common Stock
(March 5, 1996), Section 16(a) of the Exchange Act required the Company's
officers and directors, and persons who owned more than 10% of the Company's
Common Stock, to file reports of ownership and changes in ownership
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<PAGE> 10
with the SEC and the National Association of Securities Dealers, Inc. In
addition, officers, directors and greater than 10% Stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file. The Company knows of no person who owns 10% or more of the Company's
Common Stock.
Based solely on review of the copies of such forms furnished to the
Company, the Company believes that except for the failure of Messrs. Hildebrand,
Pool, and Foris and Ms. Visco to report the granting of options under the
Company's Non-employee Directors Stock Option Plan on Form 5, all Section 16(a)
filing requirements applicable to its officers and directors were complied with.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Regular Meetings of the Board of Directors of the Company are held
quarterly and special meetings of the Board of Directors of the Company are held
from time-to-time as needed. There were five meetings of the Board of Directors
of the Company held during the twelve months ended December 31, 1997. No
director attended fewer than 75% of both the total number of meetings of the
Board of Directors held during the twelve months ended December 31, 1997 and the
total number of meetings held by all committees of the Board on which the
director served during such year.
The Board of Directors of the Company has established various standing
committees of the Board, including the Compensation and Audit Committees. The
entire Board of Directors of the Company acts as the Nominating Committee.
The Compensation Committee reviews and approves the design of employee
compensation programs and assesses the effectiveness of such programs in
attaining the goals set forth in the Company's short and long-term business
plans. The committee annually reviews and approves all salary arrangements and
other remuneration for the Company's Chief Executive Officer and other
executives, evaluates executive performance against set criteria, and considers
other matters related to the employment and compensation of executive officers
and senior managers of the Company. Messrs. Foris, Hildebrand, and Pool and Ms.
Visco serve as members of this Committee. During the twelve months ended
December 31, 1997, the Compensation Committee met two times.
The Audit Committee of the Company reviews the Company's audit reports,
consults with the independent auditors on internal accounting controls, consults
with and reviews the services provided by the Company's independent auditors,
and monitors the Company's adherence in accounting and financial reporting to
Generally Accepted Accounting Principles. Messrs. Hildebrand and Pool serve as
members of this Committee. During the twelve months ended December 31, 1997, the
Audit Committee met two times.
The Board of Directors of the Company has authority under the Company's
Bylaws to establish such other committees from time-to-time as may be deemed
necessary.
DIRECTORS' COMPENSATION
During 1997, members of the Company's Board of Directors received
compensation for their services as directors. Directors received a fee of $250
for each Board and Committee Meeting attended in person. The Company reimburses
directors for their travel and lodging expenses if they have to travel more than
300 miles to attend a Board or Committee Meeting.
Non-employee directors participate in the Non-Employee Directors Stock
Option Plan ("Directors Plan"). The Directors Plan provides for annual grants of
2,000 shares of non-qualified stock options for each non-employee director. Each
grant is automatic as of the date of the Annual Meeting so long as
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<PAGE> 11
shares of Common Stock remain available under the Directors Plan. As of this
Annual Meeting, 2,000 options will be granted automatically to all non-employee
directors. The exercise price of each option is the fair market value of the
Common Stock on the date of grant. Each option expires upon the earlier of ten
years after grant or one year after the cessation of service of the recipient
director. A total of 40,000 shares of Common Stock was reserved at the time of
the Company's initial public offering for future grants of options under the
Directors Plan; 3000 shares will remain ungranted as of the day after the Annual
Meeting.
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is comprised of
three non-employee directors. The committee approves the design of employee
compensation programs and assesses the effectiveness of such programs in
attaining the goals set forth in the Company's short and long-term business
plans. The committee annually reviews and approves all salary arrangements and
other remuneration for the Company's Chief Executive Officer and other
executives, evaluates executive performance against set criteria, and considers
other matters related to the employment and compensation of executive officers
and senior managers of the Company.
EXECUTIVE OFFICER COMPENSATION
Compensation for the executive officers consists primarily of annual
compensation (comprised of base salary and an incentive compensation ("cash
bonus") award) and long-term compensation. Base salaries for each executive are
determined according to competitive pay practices, his or her level of
responsibility, prior experience, and breadth of knowledge, as well as internal
equity issues and the Company's financial condition and performance. During
1995, the Company entered into employment agreements with Mr. Brannon, Ms.
McGinnis and Mr. Nordahl, the material terms of which are described below. In
June, 1997, Messrs. Brannon and Nordahl and Ms. McGinnis agreed to a reduction
in their annual compensation for fiscal 1997 with such compensation to equal
$80,000, $55,000 and $80,000, respectively. In exchange for such reduction,
1,334 stock grants were received by each. No cash bonuses were paid in 1997.
LONG-TERM INCENTIVES
To provide long-term incentive to key employees the Company has adopted a
Stock Option Plan. This plan is designed to attract and retain qualified
personnel, provide officers and key employees with a proprietary interest in the
Company as an incentive to contribute to the success of the Company and to
reward key employees for outstanding performance and the attainment of targeted
goals. The plan provides value to its participants only if the stock price
appreciates from the date options are granted, thus focusing executives on the
creation of stockholder value. Key provisions of this plan are described below.
Other than the stock options granted to Mr. Harper upon his employment with the
Company, no stock options were granted to executives officers in 1997.
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<PAGE> 12
CONCLUSION
The Compensation Committee believes that the Company's compensation
practices and structures serve to effectively align the interest of its
executives with the interests of stockholders, to motivate and reward key
executives to achieve a high level of personal and Company performance, and to
compete for and retain executives who are critical to the future success of the
Company.
Members of the Committee:
Nicholas P. Foris, MD
Carl R. Hildebrand
Jerome M. Pool
EMPLOYMENT AGREEMENTS
In December 1995, the Company entered into employment agreements with Mr.
Brannon, Ms. McGinnis, and Mr.Nordahl, (the "Executives"). Except for base
salary amounts (none of which exceed $100,000 for any Executive through 1997),
the terms of the employment agreements are substantially similar. Each of the
Executives were engaged for a three year term; which term will be automatically
extended for an additional year upon the third anniversary of the date of the
employment agreement. According to the Agreements, the aggregate base salaries
for the Executives in the years 1996, 1997, and 1998 were to be $180,000,
$245,000 and $320,000, respectively, with base salaries to be supplemented by a
cash bonus of up to 25% of each of the Executive's base salary assuming the
Executive and/or Company meets certain performance objectives agreed to by the
Board of Directors and the Executives for that year. The Executives are entitled
to participate in all employee benefit plans of the Company and will be
reimbursed for expenses relating to Company business. Ms. McGinnis drives a
Company automobile, the operating expenses of which are paid by the Company. The
employment agreements are terminable by the Company with or without "cause" and
upon the Executive's death, disability or retirement, or by the Executives for
"good reason," or any or no reason. "Good Reason" is defined by the employment
agreement to mean termination of the Executive's employment following a change
of control of the Company (defined by the employment agreements to be an event
that would be required to be reported under the SEC's Proxy Rules or the
acquisition by any person of 25% or more of the voting power of the Company or a
change in the individuals constituting the Board of Directors during any two
consecutive years) based on: (i) a reduction in the Executive's base salary;
(ii) the relocation of the Company's executive offices; (iii) any purported
termination of the Executive without proper notice; or (iv) the failure by any
successor to the Company to assume the employment agreements. If the Company
terminates the employment agreement for cause or the Executive's disability,
retirement or death, or if the Executive terminates his or her employment for
other than good reason, the Executive will have no right to further compensation
or benefits under the employment agreement. If, however, the employment
agreement is terminated for "good reason," the Executive will be entitled to
severance pay equal to the greater of two times his or her current base salary
plus two times the cash bonus paid in the prior year or the remainder of that
year's base salary plus the base salaries due to be paid for the remaining term
of the employment agreement plus the product of the prior year's cash bonus
times the number of years (and any fractional year) remaining until the end of
the term of the employment agreement had the agreement not been so terminated.
The Executive would also be entitled to maintain, at no cost to him or her, the
Company benefits he or she was then receiving (other than participation in stock
option or restricted stock plans) until he or she obtains full-time employment
with another employer or the expiration or the remaining term of the employment
agreement, whichever is earlier. The Company has agreed to pay any excise tax,
if necessary, pursuant to Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Executive's employment is terminated by the Company
for other than cause, disability, retirement or death or if the employment is
terminated by the Executive because the Company has
9
<PAGE> 13
breached the employment agreement, the Executive will be entitled to receive
severance pay equal to the full base salary for the year in which the Executive
was terminated plus an amount equal to the cash bonus paid in the prior year.
The Executives have agreed not to disclose any proprietary information of
the Company and not to compete with the Company for twelve months after the
termination or expiration of their respective employment agreement.
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of certain information
concerning the compensation awarded, or paid by the Company for services
rendered in all capacities during the last two fiscal years, to the Chief
Executive Officer, the four other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Long Term
Compensation
Annual Compensation Awards
Other Securities Payouts All
Name and Annual Underlying LTIP Other
Principal Position Year Salary Bonus Compensation Options Payouts Compensation
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Kevin E. Brannon 1997 $90,000 $ -- $10,000(1) -- $ -- $ --
Chief Executive Officer 1996 $61,000 $ -- $ -- -- $ -- $ --
Marjorie A. McGinnis 1997 $90,000 $ -- $10,000(1) -- $ -- $ --
President 1996 $61,000 $ -- $ -- -- $ -- $ --
Steven T. Nordahl 1997 $65,000 $ -- $10,000(1) -- $ -- $ --
VP-Brewing Operations 1996 $49,000 $ -- $ -- -- $ -- $ --
Leslie P. Harper(2) 1997 $6,462 $ -- $ -- -- $ -- $ --
Chief Financial Officer
Patrick Helsel 1997 $46,963 $ -- $ -- -- $ -- $ --
VP-Sales
</TABLE>
- -------------------------------
(1) In lieu of a $10,000 reduction in salary, a stock grant of 1,334 shares was
awarded, the fair market value of which is reflected.
(2) Employment was commenced in November 1997.
STOCK OPTION PLAN
Effective November 20, 1995, the Board of Directors of the Company
adopted the 1995 Stock Option Plan ("Stock Option Plan") which was approved by
the stockholders of the Company at a special Meeting of Stockholders held on
December 9, 1995. Options covering 19,193 shares of Common Stock have awarded to
key employees of the Company and to 24 other Company employees under the Stock
Option Plan.
The Stock Option Plan provides for the grant of incentive stock options
("Options") intended to comply with the requirements of Section 422 of the Code.
The Company has reserved a number of shares of Common Stock for issuance
pursuant to the exercise of Options granted under this plan, subject to
adjustment under the Stock Option Plan, equal to 156,390 shares. In the event of
a stock split, reverse stock split or stock dividend, the number of shares of
Common Stock under the Stock Option Plan, the
10
<PAGE> 14
number of shares to which any Option relates and the exercise price per share
under any Option will be adjusted to reflect such increase or decrease in the
total number of shares of the Common Stock outstanding.
The Stock Option Plan is administered and interpreted by the Compensation
Committee of the Board of Directors which is "disinterested" pursuant to
applicable regulations under the federal securities laws. Unless sooner
terminated, the Stock Option Plan will be in effect until November 20, 2005, ten
years from the date of the adoption of the Stock Option Plan by the Board of
Directors.
Under the Stock Option Plan, the Compensation Committee will determine,
among other things, which officers and key employees will be granted Options,
the performance goals which must be met to receive Options, the number of shares
subject to each Option, the exercise price of the Option, whether such Options
may be exercised by delivering other shares of Common Stock or other
consideration and when such Options become exercisable. The per share exercise
price of all Options is required by the Code to be at least equal to the fair
market value of a share of Common Stock on the date the Option is granted. The
Code also requires that the aggregate fair market value of the Common Stock with
respect to which the Options are exercisable for the first time by the Optionee
during any calendar year cannot exceed $100,000. Moreover, any person who owns
10% or more of the voting power of the Common Stock may not receive Options
whose exercise price is less than 110% of the fair market value of a share of
Common Stock of the Company on the date of grant.
Options will become vested and exercisable in the manner specified by the
Committee and all Options will be become fully vested and exercisable in the
event of a change in control of the Company, as defined in the Stock Option
Plan. Each Option or portion thereof shall be exercisable at any time on or
after it vests and is exercisable until ten years after its date of grant or
three months after the date on which the optionee's employment terminates,
unless extended by the Committee to a period not to exceed five years from such
termination. However, failure to exercise Options within three months after the
date on which the optionee's employment terminates may result in adverse tax
consequences to the optionee. Options are non-transferable except by will or the
laws of descent and distribution.
Under current provisions of the Code, the federal income tax treatment of
stock options is as follows: An optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised, and a federal income tax deduction generally
will not be available to the Company at any time as a result of such grant or
exercise.
11
<PAGE> 15
SUMMARY OF STOCK OPTIONS GRANTED
The following table sets forth certain information concerning individual
grants of stock options made during the year ended December 31, 1997.
STOCK OPTIONS GRANTED IN YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Individual Grants
% of Total
Options Options Granted Exercise Expiration
Name Granted to Employees Price per Share Date
<CAPTION>
<S> <C> <C> <C> <C>
Nicholas P. Foris, MD, 2000 15.25% $3.69 6/05/07
Director
Carl R. Hildebrand, 2000 15.25% $3.69 6/05/07
Director
Jerome M. Pool, 2000 15.25% $3.69 6/05/07
Director
Maribeth Visco, 2000 15.25% $3.69 6/05/07
Director
</TABLE>
SUMMARY OF STOCK OPTIONS EXERCISED
The following table sets forth certain information regarding stock
options held by the executive officers named in the Summary Compensation Table
as of December 31, 1997.
AGGREGATE OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1997
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Shares Number of Value of
Acquired Securities Underlying Unexercised
on Value Unexercised Options Options at
Exercise Realized at Year End Year End(1)
Name (No.) ($) Exercisable Unexercisable Exercisable Unexercisable
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Kevin E. Brannon -- -- -- -- $ -- $ --
Marjorie A. McGinnis -- -- -- -- $ -- $ --
Steven T. Nordahl -- $ -- 16,779 -- $25,269 $ --
</TABLE>
- -------------------------------
(1) Based on the closing market price for the Company's Common Stock as of
December 31, 1997.
12
<PAGE> 16
EMPLOYEE RETIREMENT PLAN
The Company has a 401(k) plan for all employees ("401(k) Plan"), age 18
or older, with one year of service. The 401(k) plan is a contributory defined
contribution plan which is intended to qualify under Section 401(k) of the Code.
Participants may contribute to the 401(k) Plan by salary reduction up to 15% of
Annual compensation for the year. Such contribution defers the employee's
earnings up to a maximum of $9,500 in each plan year, indexed Annually. The
Company may in its discretion, determine each year to make a matching
contribution out of current or accumulated net profit equal to a percentage of
the amount deferred by the employee. While an employee's contributions to the
401(k) Plan are immediately vested, the matching contributions made by the
Company become vested upon the completion of seven years of credited service.
All funds contributed to the 401(k) Plan are held in a trust fund, which are
invested at the direction of the employee in up to any one or more of seven
separate funds. The 401(k) Plan became functional in the second quarter of 1996.
Company contributions to the 401(k) Plan in 1997 totaled $12,459.70.
CERTAIN TRANSACTIONS
RELATED PARTY TRANSACTIONS
The Company has borrowed money from its directors and stockholders from
time to time to provide cash for operations and for other purposes. At December
31, 1997, the Company had: (i) a five year loan due July 1999 in the original
principal amount of $50,000, with interest payable at the rate of 10%, from Dr.
Foris secured by Company vehicles; and (ii) three loans from stockholders due
March 1999, in the aggregate original principal amount of $62,000 with interest
payable at the rate of 10%. All of these loans are current and are evidenced by
unsecured promissory notes.
On December 19, 1995, the Company assigned all of its rights and
obligations under a real estate purchase agreement to acquire the land for the
Company's new brewery to Blue II LLC ("Blue II") and on July 17, 1996 the
Company entered into a lease of the brewery with Blue II. The lease is a triple
net lease with a monthly rental payment of $3,000 plus an amount equal to Blue
II's interest and principal payments due under its economic development revenue
bond obligation and expires on December 31, 2017. Blue II is a recently formed
Maryland limited liability company whose managing member is Mr. Edward D. Scott,
a partner of Ms. Visco, a director of the Company, in the commercial real estate
firm of Kline, Scott, Visco. Mr. Scott has a 25% interest in Blue II. The other
members of Blue II who are affiliated with the Company are Dr. Foris, a director
of the Company, Dr. Radha Nathan and Mr. Schuerholz, both of whom are
stockholders of the Company and a business associate of Mr. Scott, each of whom
hold a 25% interest. The lease arrangements were negotiated by the Company and
Blue II at arm's length. Management of the Company believes that the terms of
the lease are at market rates and at least as favorable to the Company as could
have been obtained from a non-affiliated lessor.
No loans will be made by the Company to officers, directors or
stockholders who own more than 5% of the outstanding shares of Common Stock or
the affiliates of any of them, except for a bona fide business purpose.
13
<PAGE> 17
AMENDMENT OF THE ARTICLES
GENERAL
The Board of Directors has unanimously adopted a resolution to submit to
the stockholders a proposal to amend the second sentence of Article V of the
Company's Articles to increase the number of shares of capital stock which the
Company is authorized to issue from 10,000,000 to 20,000,000. The Board has
determined that such an amendment is necessary (the "Amendment Proposal").
The full text of the second sentence of Article V of the Company's
Articles, if amended as proposed, would read as follows:
Pursuant to these Articles of Amendment, the total number of
shares of capital stock which the Corporation has authority to
issue is 20,000,000, of which 19,000,000 shall be common stock,
$0.00004 par value per share (hereinafter the "Common Stock") and
of which 1,000,000 shall be preferred stock, $0.01 par value per
share (hereinafter the "Preferred Stock").
The terms of the additional shares of Common Stock will be identical to
those of the currently outstanding Common Stock. However, because shareholders
have no preemptive rights to purchase any additional shares of Common Stock,
which may be issued, the issuance of additional shares will likely reduce the
percentage interest of current shareholders in the total outstanding shares. The
Amendment Proposal will not increase the number of shares of Preferred Stock
authorized. The relative rights and limitations of the Common Stock and
Preferred Stock would remain unchanged under the Amendment Proposal.
PURPOSES AND EFFECTS OF INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
If approved by the Company's Stockholders, the Amendment Proposal would
increase the number of shares of Common Stock which the Company is authorized to
issue from 10,000,000 to 19,000,000. The additional 1000,000 shares, if and when
issued, would have the same rights and privileges as the outstanding shares of
Common Stock. See "Description of Securities -- Common Stock."
The Board of Directors recommends the proposed increase in the authorized
number of shares of Common Stock to enable the Company to satisfy its
obligations under the terms of the Series A, Series B, Series C, Series D and
Series E Preferred Stock, warrants and options associated with the issuance of
the Series A and Series B Preferred Stock, and outstanding stock option grants
as well as the Assets Purchase Agreement entered into with Brimstone Brewery and
Agreement and Plan of Merger entered into with Wild Goose Brewery, Inc. See
"Consequences if Stockholder Approval Is not Obtained." In addition, the
approval of the Amendment Proposal would help ensure an adequate supply of
authorized and unissued shares for (i) additional issuances under the Company's
Stock Option Plan and other employee benefit plans, (ii) the raising of
additional capital for the operations of the Company, (iii) the financing of the
acquisition of other businesses, and (iv) the satisfaction of the Company's
contingent obligations to issue Common Stock. Except as described herein, there
are currently no plans or arrangements relating to the issuance of any of the
additional shares of Common Stock proposed to be authorized and such shares
would be available for issuance without further action by stockholders, unless
required by the Company's Articles, its Bylaws or applicable law.
The increase in the number of authorized shares of Common Stock has not
been proposed for any anti-takeover purpose and the Board of Directors and
members of management of the Company have no knowledge of any current effort to
obtain control of the Company or to accumulate large amounts of its Common
Stock. However, the availability of additional shares of Common Stock could make
any attempt
14
<PAGE> 18
to gain control of the Company or of the Board more difficult. Shares of
authorized but unissued Common Stock could be issued in an effort to dilute the
stock ownership and voting power of any person or entity desiring to acquire
control of the Company, which might have the effect of discouraging or making
less likely such a change of control. Such shares could also be issued to other
persons or entities who support the Board in opposing a takeover attempt that
the Board considers not to be in the best interests of the Company and its
stockholders.
If all such options and warrants were exercised and all shares of the
Series A, Series B, Series C, Series D and Series E Preferred Stock outstanding
on December 31, 1997 were converted, approximately 10,286,344 shares of Common
Stock would be outstanding. These share amounts are based upon the following
formulas for each series of Preferred Stock.
Each share of Series A Preferred Stock is convertible, at the
option of the holder thereof, at any time after the 365th day following
the date of issuance of such shares (March 31, 1997) or immediately
preceding any public sale of the Company's Common Stock pursuant to the
registration of such Common Stock with the SEC, whichever is first to
occur, but prior to the mailing of any notice of redemption by the
Company (the "Series A Conversion Date"). The conversion formula is
determined by dividing $500 by the product of .83 times the average
closing price of the Common Stock as reported by the Wall Street Journal
over the 30 days immediately preceding the Closing Date (the "ACP"), in
the event the Series A Conversion Date is within two years of the date of
issuance of the Series A Preferred Stock. Thereafter, the number of
shares of Common Stock into which each share of the Series A Preferred
Stock may be converted will be equal to $500.00 divided by 100% of the
ACP.
Each share of the Series B Preferred Stock is convertible, at the
option of its holder, at any time after May 15, 1997, into a number of
shares of Common Stock equal to $1,000 divided by the lower of (i)
Seventy Percent (70%) of the average Market Price of the Common Stock for
the five trading days immediately prior to the conversion date or (ii)
$3.0625, increased proportionally for any reverse stock split and
decreased proportionally for any forward stock split or stock divided.
Each share of the Series C Preferred Stock is convertible, at the
option of its holder, at any time, into a number of shares of Common
Stock equal to $1,000 divided by the lower of (i) Seventy Percent (70%)
of the average Market Price of the Common Stock for the five trading days
immediately prior to the conversion date or (ii) $1.62, increased
proportionally for any reverse stock split and decreased proportionally
for any forward stock split or stock divided.
Each share of the Series D Preferred Stock (the "Preferred
Shares") shall be convertible, at the option of its holder, at any time,
into a number of shares of Common Stock equal to $1,000 divided by the
lower of (i) Seventy Percent (70%) of the average Market Price of the
Common Stock for the five trading days immediately prior to the
conversion date or (ii) 75% on day of issuance increased proportionally
for any reverse stock split and decreased proportionally for any forward
stock split or stock divided.
Each share of Series E Preferred Stock is convertible, at the
option of its holder, at any time after 90 days or April 1, 1998 from its
issuance into a number of shares of Common Stock equal to $1,000 divided
by Seventy Five Percent (75%) of the average Market Price of the Common
Stock for the five trading days immediately prior to the conversion date.
For purposes of the Series B, Series C, Series D and Series E
Preferred Stock, market price for any date shall be the closing bid price
of the Common Stock, on such date, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
or the closing bid price in the over-the-counter market if other than
NASDAQ.
15
<PAGE> 19
The following table summarizes this analysis:
<TABLE>
<S> <C>
Shares Outstanding--December 31, 1997....................... 4,532,491
Options Outstanding--December 31, 1996...................... 59,987
Options Granted to Third Parties in 1997 Series B Preferred
Stock Financing........................................... 700,000
Warrants Outstanding--December 31, 1996..................... 98,558
Warrants Issued to Third Parties in Connection with the 1997
Series A Preferred Stock
Offering.................................................... 75,056
Series A Convertible into Common Stock...................... 248,906
Series C Convertible into Common Stock...................... 893,626
Series C Being Converted into Common Stock.................. 402,663
Series D Convertible into Common Stock...................... 645,057
Series E Convertible into Common Stock...................... 1,350,000
Common Stock issued to Owners of Brimstone.................. 80,000
Common Stock issued to Owners of Wild Goose................. 1,200,000
----------
Total issued or necessary for Issuance...................... 10,286,344
Total Shares of Common Stock Available (Shortfall).......... (1,286,344)
</TABLE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles authorizes the issuance of 9,000,000 shares of
Common Stock, $.00004 par value per share, of which shares were
outstanding as of March 12, 1998. Holders of shares of Common Stock are entitled
to one vote for each share on all matters to be voted on by the shareholders.
Holders of Common Stock have no cumulative voting rights. Holders of shares of
Common Stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by the Board of Directors in its discretion, from
funds legally available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of share of Common Stock are entitled to
share pro rate all assets remaining after payment in full of all liabilities.
Holders of Common Stock have no preemptive rights to purchase the Company's
Common Stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the Common Stock. All of the outstanding shares of
Common Stock are validly issued, fully paid and non-assessable.
The transfer agent for the Common Stock is Registrar & Transfer Company,
10 Commerce Drive, Cranford, New Jersey 07016.
PREFERRED STOCK
The Company's Articles also authorize the issuance of 1,000,000 shares of
preferred stock, $.01 par value, of which shares of Series A Preferred,
0 shares of Series B Preferred, shares of Series C Preferred,
shares of Series D and 3,000 shares of Series E Preferred are outstanding. The
Preferred Stock is convertible into shares of common stock (see "Selling
Stockholders"). The holders of Series A Preferred are senior to the Common Stock
with respect to dividend rights and are entitled to a liquidation preference of
$500 per share. The annual dividend rate for the Series A Preferred is $40.00
per share per annum, and the annual dividend rate for the Series C, Series D and
Series E Preferred Stock before dividends may be paid or set aside on the
Company's Common Stock. All dividend payments are subordinated to the Company's
debt obligations, and are subject to the prior approval of Signet and the
Company's other future lenders. Signet has stated that it will not permit
dividends to be paid on the
16
<PAGE> 20
Series A Preferred Stock in 1997. The Company has the option to pay dividends on
the Series C, Series D and Series E Preferred by the issuance of Common Stock
valued at the then effective conversion rate of the Series C, Series D and
Series E Preferred Stock. The holders of Series B, Series C, Series D and Series
E Preferred have a liquidation preference of $1,000 per share over the Common
Stock and the Series A Preferred. Dividends on the Series B Preferred may be
declared and paid if, when and to the extent determined from time to time by the
Company's Board of Directors, provided that such dividends shall be declared
with respect to the Series B Preferred Stock on par with dividends declared with
respect to the Company's Common Stock. The Company does not expect to declare or
pay such dividends in the foreseeable future. The Company may issue additional
preferred stock in the future. The Company's Board of Directors has authority,
without action by the shareholders, to issue all or any portion of the
authorized but unissued preferred stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series.
The Company considers it desirable to have preferred stock available to
provide increased flexibility in structuring possible future acquisitions and
financings and in meeting corporate needs which may arise. If opportunities
arise that would make desirable the issuance of preferred stock through either
public offering or public placements, the provisions for preferred stock in the
Company's Articles of Incorporation would avoid the possible delay and expense
of a shareholder's meeting, except as may be required by law or regulatory
authorities. Issuance of the preferred stock could result, however, in a series
of securities outstanding that will have certain preferences with respect to
dividends and liquidation over the Common Stock which would result in dilution
of the income per share and net book value of the Common Stock. Issuance of
additional Common Stock pursuant to any conversion right which may be attached
to the terms of any series of preferred stock may also result in dilution of the
net income per share and the net book value of the Common Stock.
[FINANCIALS TO BE PROVIDED BY COOPERS PURSUANT TO ITEMS 11, 12 AND 13(A) OF
SCHEDULE 14A.]
In evaluating the Amendment Proposal, stockholders should consider the
effect of certain other provisions of the Company's Article and Bylaws that may
have anti-takeover consequences. These provisions include (i) the authorization
of Preferred Stock, the terms of which may be fixed by the Board of Directors
without further action of the Stockholders, (ii) a provision that standing
Directors may be removed only by a two-thirds vote of stockholders entitled to
vote; (iii) a limitation of the ability of the Company's stockholders to call
special stockholder meetings; and (iv) limitations on certain business
combinations and acquisitions involving the Company.
VOTE REQUIRED; EFFECTIVE DATE OF PROPOSED AMENDMENT
If the Amendment Proposal is approved by an affirmative vote of more than
two-thirds of all votes entitled to be cast at this Annual Meeting, it will
become effective upon the filing by the Company of Articles of Amendment to the
Company's Articles with the State Department of Assessments and Taxation of
Maryland, which is expected to be done as soon as practicable after stockholder
approval is obtained.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
AMENDMENT PROPOSAL.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Coopers & Lybrand
LLP, as independent auditors for the Company for the year ending December 31,
1998, and further directed that the selection of
17
<PAGE> 21
auditors be submitted for ratification by the Stockholders at the Annual
Meeting. The Company has been advised by Coopers & Lybrand LLP that neither the
firm nor any of its associates has any relationship with the Company other than
the usual relationship that exists between independent pubic accountants and
clients. Coopers & Lybrand LLP will have representatives at the Annual Meeting
who will have an opportunity to make a statement, if they so desire, and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND LLP AS INDEPENDENT AUDITORS FOR THE YEAR ENDING
DECEMBER 31, 1998.
APPROVAL OF ADJOURNMENT
If a quorum is not obtained or if fewer shares are likely to be voted to
approve the Amendment Proposal than the number required for approval, the Annual
Meeting may be adjourned for the purpose of obtaining additional proxies or
votes or for any other purposes, and, at any subsequent reconvening of the
Annual Meeting, all proxies will be voted in the same manner as such proxies
would have been voted at the original convening of the meeting (except for any
proxies which have theretofore effectively been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter prior to the adjournment.
If it is necessary to adjourn the Annual Meeting, no notice of the time
and place of the adjourned meeting is required to be given to the Company's
stockholders other than the announcement of such time and place at the Annual
Meeting. The affirmative vote of the holders of at least a majority of all votes
cast at the Annual Meeting is required to approve such adjournment. An
adjournment of the Annual Meeting may be necessary because the limited time
between the mailing of the Proxy Statement and the Annual Meeting may result in
the lack of quorum at the Annual Meeting.
If the Annual Meeting is postponed or adjourned, at any subsequent
reconvening of the Annual Meeting, all proxies will be voted in the same manner
as such proxies would have been voted at the original convening of the Annual
Meeting (except for any proxies that have theretofore effectively been revoked
or withdrawn.)
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADJOURNMENT
PROPOSAL.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be included in the proxy materials
and presented at the Annual Meeting of Stockholders to be held in 1999 must be
received by the Secretary of the Company, at 4607 Wedgewood Blvd., Frederick,
Maryland 21703, no later than November 26, 1998. If such proposal is in
compliance with all of the requirements of Rule 14a-8 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), it will be
included in the proxy statement and set forth on the form of proxy .
Proposals not submitted for inclusion in the proxy statement, and
therefore not included in such, may be properly brought before an Annual Meeting
by a stockholder who has submitted such proposals on a timely basis and in a
form and manner consistent with that specified under the Company's Articles of
Incorporation. For such notice to be timely for the 1999 Annual Meeting, it must
be received by the Secretary of the Company, at 4607 Wedgewood Blvd., Frederick,
Maryland 21703, no later than January 25, 1999. For the 1998 Annual Meeting, no
Stockholder proposals were received.
18
<PAGE> 22
OTHER MATTERS
Management is not aware of any business to come before the 1998 Annual
Meeting other than those matters described in this Proxy Statement. However, if
any other matters should properly come before the 1998 Annual Meeting, it is
intended that the proxies solicited hereby will be voted with respect to those
other matters in accordance with the judgment of the persons voting the proxies.
ANNUAL REPORTS AND FINANCIAL STATEMENTS
Stockholders of the Company as of the Record Date for the 1998 Annual
Meeting are being forwarded a copy of the Company's Annual Report to
Stockholders for the year ended December 31, 1997 ("Annual Report"). Included in
the Annual Report are the statements of financial position of the Company as of
December 31, 1997 and 1996 and the statements of operations and cash flows for
each of the years in the two-year period ended December 31, 1997, prepared in
accordance with Generally Accepted Accounting Principles, and the related
reports of the Company's independent public accountants. The Annual Report is
not a part of the soliciting materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-KSB FOR THE YEAR ENDED DECEMBER 31, 1997, AND ANY EXHIBITS THERETO REQUIRED
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE EXCHANGE ACT.
SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO LESLIE P. HARPER, CHIEF FINANCIAL
OFFICER, FREDERICK BREWING CO., 4607 WEDGEWOOD BOULEVARD, FREDERICK, MARYLAND
21703. THE FORM 10-KSB IS NOT A PART OF THE COMPANY'S PROXY SOLICITATION
MATERIALS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kevin Brannon
KEVIN E. BRANNON
Chairman of the Board
March 25, 1998
Frederick, Maryland
19
<PAGE> 23
FREDERICK BREWING CO.
4607 Wedgewood Boulevard, Frederick, Maryland 21703
----------------------------
Revocable Proxy
------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FREDERICK BREWING CO. FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998 AND AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The Undersigned hereby appoints Kevin E. Brannon or Marjorie A. McGinnis as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares of
Common Stock of Frederick Brewing Co. held of record by the undersigned on March
12, 1998, at the Annual Meeting of Stockholders to be held on April 23, 1998, or
any adjournment or postponement thereof, with all the powers that the
undersigned would possess if personally present as indicated below.
1. ELECTION OF DIRECTORS for a term expiring at the 1999 Annual Meeting:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [ ] to vote for all nominees listed below [ ]
James W. Lutz
----------------------------------------------------------------------------------------------
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL WRITE THE
NOMINEE'S NAME ON THE LINE BELOW)
ELECTION OF DIRECTORS for a term expiring at the 2001 Annual Meeting:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) [ ] to vote for all nominees listed below [ ]
Kevin E. Brannon Marjorie A. McGinnis
----------------------------------------------------------------------------------------------
</TABLE>
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL WRITE THE
NOMINEE'S NAME ON THE LINE BELOW)
2. PROPOSAL TO AMEND THE ARTICLES OF AMENDMENT AND RESTATEMENT of the
Articles of Incorporation of the Company.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. PROPOSAL TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND LLP as the
independent auditors of Frederick Brewing Co. for the year ending
December 31, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. PROPOSAL TO ADJOURN THE ANNUAL MEETING TO ANOTHER DATE OR PLACE for the
purpose of soliciting additional proxies.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before this Meeting including, but not
limited to, the election of any person as a director if the nominee is
unable to serve or for good cause will not serve, matters incident to the
conduct of the Meeting, and upon such other matters as may properly come
before the Meeting.
<PAGE> 24
Frederick Brewing Co.
Proxy Card
Page 2 of 2
THIS PROXY HAS BEEN MADE AVAILABLE TO
The Board of Directors recommends that you vote FOR the nominees listed
on the reverse side hereof and FOR Proposals 2, 3 and 4. You are encouraged to
specify your choices by marking the appropriate boxes; however, you need not
mark any boxes if you wish to vote in accordance with the Board of Directors'
recommendations. This proxy may not be voted for any person who is not a nominee
of the Board of Directors of the Company.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
SHARES OF COMMON STOCK OF THE COMPANY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, SHARES WILL BE VOTED FOR THE ELECTION OF THE BOARD OF
DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS, FOR PROPOSALS 2, 3 AND 4 AND
OTHERWISE AT THE DISCRETION OF THE PROXIES.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders of the Company called for April 23, 1998, a Proxy Statement for the
Annual Meeting and the 1998 Annual Report to Stockholders.
PLEASE MARK, SIGN, DATE, AND PROMPTLY RETURN THIS PROXY CARD
USING THE ENCLOSED ENVELOPE.
<TABLE>
<C> <S> <C>
------------------------------------------------ Date: ------------------, 1998
Signature
Date:
------------------------------------------------ ------------------, 1998
Signature
</TABLE>
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS
PROXY. ONLY ONE SIGNATURE IS REQUIRED IN CASE OF A JOINT
ACCOUNT. WHEN SIGNING IN A REPRESENTATIVE CAPACITY, PLEASE
GIVE TITLE.
